Bitcoin, the biggest cryptocurrency by market capitalization, goes back to 2009. One of the concepts that made bitcoin possible was the concept of the proof of work. Cynthia Dwork and Moni Naor introduced the concept in 1993 and Markus Jakobsson and Ari Juels coined the term in 1999.

The Lifecycle of a Cryptocurrency

Because cryptocurrencies are so new, it is hard to predict what will be happening to them in the future. However, what is clear is that they are based on groundbreaking technologies and offer features that no currency has offered before such as full transparency, coin cap, and decentralization.

A typical lifecycle of a coin begins with a pre-launch. During the pre-launch, many developers offer extremely attractive terms to those who invest in their coins. Unless you know a lot about the developers, the technology behind their coin and the space in which they are launching their coin, investing during pre-launch is not the best long-term strategy.

Pre-launch is a great time to start doing research and learn as much as you can about the developers, including their background and reputation, the technology behind the coin, the idea and the space where developers are launching the coin. This is also a great time to check the coin for the red flags such as pre-mined coins and centralization of the network. You may also want to pay attention to the depth of the marketing plan of the developers. Many developers talk about how every investor in the coin will be very rich when the network has millions of users, yet they provide no roadmap to how they will get to the first hundred, first hundred thousand, first million users.

It is very likely that your first interaction with a coin will happen in the announcements section of one of the major cryptocurrency forums, such as BitcoinTalk.org. Even though, as its name suggests, BitcoinTalk originated as a forum dedicated to bitcoin, today is it the place where most developers present their new coins and cryptocurrencies to the public. You can see the latest announcements about altcoins at https://bitcointalk.org/index.php?board=159.0

When you visit the forum, you will see coin announcements ordered by the time of the latest post. This means that an older coin with a more active community may be located higher in the announcements section than a newer coin with less traction. If you are serious about investing in new coins, it is a good idea to become a member of BitcoinTalk.org and also join private forums for any coins that you may find interesting. However, on BitcoinTalk.org you will be able to view the threads even if you are not a member of the forum. When you join BitcoinTalk.org, one of the best strategies is to ask developers any and all questions that you may have.

Developers of legitimate coins are very open and approachable during the early stages of the project, which is why you should take advantage of this, get a feel for the team behind a coin and obtain as much information as you can. You will be able to learn a lot about a coin by not just reading about the technology, but also by simply how its developers interact with you and answer your questions.

Typically, serious developers who have thought their coin and project through will start their announcement thread with a link to their whitepaper.

Reading Whitepapers

A whitepaper is a scholarly document that introduces a complex concept. Satoshi Nakamoto wrote a whitepaper about Bitcoin in 2008. It was called “Bitcoin: A Peer-to-Peer Electronic Cash System.” To this day, Nakamoto’s whitepaper is available. You should read Nakamoto’s paper to get a feel how a quality whitepaper reads like and feels like.

Nakamoto’s whitepaper is short. It has just nine pages, yet on those pages it discusses the most important aspects of cryptocurrencies, including the way transactions work, timestamps, the concept of the proof of work, the network, incentives for miners and privacy issues. Nakamoto’s whitepaper has 8 references, going back as far as to 1957. This is one of the things you should be looking for in whitepapers: they should refer to recognized scientific works, not just links to forum threads.

A thread or a whitepaper should also introduce the team of developers behind the new coin, including their real identities, work experience, education, and accomplishments. The more information you see about the real identities behind the project, the higher the chances that the team is in the project for the long haul because sharing information carries potential physical and legal risks.

Phase 2

One of the musts on your to-do list, before you invest in a new coin, needs to be learning about the identities of the developers, but you need to remember that doing so is not a surefire way to avoid problems. Bitcoin was created by anonymous developers. Also, there have been instances in the past when people willingly shared information about themselves, yet were running scam projects at the same time.

When it comes to doing research, Google and other search engines are your friends. Enter the names of the developers into the search engines and social networks such as LinkedIn and see what comes up. It is also useful to run searches on the forum handles of the anonymous developers. Typically, people use the same online handle or nickname on multiple forums and in multiple online communities and you’ll be able to find a lot of information just using an online handle.

Read all the information about the coin and the team carefully and attentively. If there is something you don’t understand or have questions about, go to the main thread and ask questions in the thread. If the coin goes under and nobody knows anything about the developers, it is much harder to take legal action about them. At the same time, if a developer resides in a country with an established legal system, such as the United States or the United Kingdom, and is willingly sharing information about his or her identity, it is very likely that the developer has serious intentions about the project.

Is it fair to form an opinion about someone by simply looking them up online and researching the history of their posts on the forums from years ago? No, it is not. Ideally, you’d like to meet the person, look them in the eye and have an in-person conversation about what they are doing and about their experience. Unfortunately, this is not always possible, especially when dealing with technology projects because developers can live anywhere in the world. Because of this, investors and cryptocurrency enthusiasts have to use imperfect shortcuts.

Launch of a New Coin

Developers usually announce the date of the launch on a BitcoinTalk.org forum in UTC, which is Coordinated Universal Time. When a launch starts, you should have unrestricted access to both mining software and wallet software. Beware of projects that require users to compile the code. While code compilation is a rather simple procedure, making users download the code and then compile it does add a layer of complication, which is not what legitimate developers usually do. Developers that are serious about the success of their projects are most likely interested in attracting as many users as possible, which can happen if they make things as easy as possible. Therefore, you should be very careful if you think that someone is making things complicated on purpose. This may mean keeping mining to a select few, which should be a red flag and an indication of an instamine. During the few hours or days of a launch there may be gaps in communication because developers have a lot of work and need to deal with a lot of issues, but a legitimate project will sort the quirks out within several days. This means that even though you should not expect an immediate response to your question or message, you should hear back within up to a week. If developers are not interacting with the community in a prompt and professional manner during the launch, which is the time when the stakes are really high, it is likely that they will continue neglecting the needs of their users after the launch is over, too.

First Six Months of a Coin

Several weeks after the launch, a coin should be coming along according to the original vision of the developers outlined in the whitepaper and forum posts. The birthing pains and launch friction should go away with time. At this stage, one of the main goals of the team behind the coin is to find markets where they trade their coin and make it available to the general public. Up to this point, serious developers would often buy coins back from miners communicating with them via forum threads and direct messaging. The price is often established on the case-by-case basis, which is why it is okay for the price of a new coin to fluctuate greatly during the first several months of the life of the coin.

Phase 3

Introduction to a Marketplace

The introduction of a coin to a marketplace is a very significant milestone in the lifecycle of a coin. While the vision of the developers and reaction of early adopters are important, the performance of the coin on the marketplace shows its real potential and value in the eyes of the general public and unbiased investors. If the coin is doing well, during the first few months of the coin on the market its trading volume will be increasing. The price is likely to fluctuate wildly, but the interest, volume, and community should be growing.

Another important indicator of how the coin is doing is its original announcement thread at BitcoinTalk.org. It is easy to see how the activity and popularity of a particular forum thread by simply checking how many pages and posts it has and when users posted the first and the last message. The number of pages shows you how active the community behind the coin is. The last few pages of a thread should consist of the interactions between the community and members of the team for larger coins and developers answering questions for smaller coins. Make sure that the posts are recent and you are not reading an old thread, even though an old thread can be a good lesson about what happens with successful and unsuccessful coins. An ideal coin is a coin that is at least six months old, has a very active community and is still going strong. Six months is a point that many new coins, especially pump and dump coins, are never going to get to.

Finally, around this time the coin and the software should be getting some major updates. While it is too early for all the features that developers promised in their whitepaper to come to life at once, there should be definite movement in the promised direction. This is also the point where developers are likely to update or revisit the whitepaper and issue a new version that more precisely reflects the realities of what has been happening with the coin. This is absolutely fine as long as the features that developers promised get adjustments and tweaks and aren’t eliminated altogether.

If the developers are delivering on the features and promises and the community is increasing in size, it is likely that the coin is going to have a good future ahead of it.

From Six Months to Eighteen Months

The next important milestone for a coin is the eighteen months point. One of the main reasons why most coins don’t get to this point is the lack of financing. Between six and eighteen months, a coin still needs a lot of fiat funds because the developers need to hire marketers, public relations experts, graphic designers, and coders to keep the project going. Most of the coins solve this issue in one of two ways.

The first way is to collect membership fees and to gather donations for specific features and projects that community deems necessary.

The second way is to openly pre-mine some coins and sell them once trading begins on an exchange.

Both of these ways suffer from the same issue but approach it from the completely different ends. The issue is that they depend entirely on one strategy. With the first way, the strategy is to generate the goodwill in the community. With the second way, the implementation has a lot of risks for fraud.

Only a few coins were able to come up with other ways to keep funding going. If you notice a coin with an innovative approach to fundraising, keep an eye on it to see what and how the developers are going to do and what happens to the coin.

Getting the Word Out

As a coin gets more and more popular, there will be more and more people willing to talk about it and discuss it on their social media simply because they believe in the coin. If you see a hashtag with the name of the coin becoming popular and users with long-term established reputations supporting the coin, it is a very good sign that the developers are being successful in nurturing the community behind the coin. This is similar to politicians developing grassroots movement on the ground even when they don’t have a lot of funds or corporate support.

Growing Transaction Volume

As a community around a coin grows, so should the transaction volume, even though just like the price of the coin, transaction volume can be very volatile.